How do they work?

I believe they account for wheel offset differences by pushing the wheel out.

I had to get wheel spacers on my rears to keep the drum brakes together..there was a "invisible" gap between the custom wheel and outer drum..otherwise they really don't do anything..

Yes, they can help offset wheel difference but suppose you want to adapt a 8 lug wheel to your 5 or 6 lug axle, the wheel spacer will sometimes have a new bolt pattern in it that simply bolts to your axle ands give you your new bolt pattern. This is very popular with the diesel crowd, they often adapt big rig wheels which requires a wheel spacer/adapter (I think they're the same thng)

Depends, some are just plates that the move the wheel away from the axle and still use the original studs to secure them. Ok, for a little distance, kinda hazardous for larger offsets.

The type I run on the '87 Camaro are 2.25" aluminum spacers from Vette Brakes and Suspensions. These allow me to mount the 4th Gen F-Body rims on a 3rd gen. The spacers are machined aluminum with 5 studs in them and five holes (they use 10 lugnuts per wheel..5 attach the spacer to the axle via the original studs, then 5 more bolt the rim to the spacer via studs pressed into the spacer.

I found they work great this way, even run them on race tracks and had zero problems. One thing I made sure of was the centerline of the tires lined up with the centerlines of the originals. So there'* no change in suspension geometry nor any additional loads put on the axles.